News | 27th Oct, 2010

Bank slashes value of share in Hazelwood

Wednesday, 27 October 2010
Adam Morton and Danny John, The Age

Doubts have been cast over the value of one of Australia's ''dirtiest'' power stations after the Commonwealth Bank announced it had all but written off its share in the plant.

Responding to a question at the bank's annual meeting in Sydney, Commonwealth Bank chairman David Turner said it had written down its 2 per cent holding in the Hazelwood coal-fired power plant in the Latrobe Valley to just $1 million.

It is a fraction of what the bank paid for its stake in the plant – understood to be about $25 million – when the state government privatised the electricity industry in 1996.

The dramatic write-down comes as the Brumby government negotiates with the plant's majority owner, International Power, on a compensation package to close a quarter of its generation by 2014.

A Commonwealth Bank spokesman told The Age that it had written down its investment based on a recent assessment of its market value, as per accounting standard requirements. The value of coal-fired plants has been written down around the world as steps are taken to lower greenhouse gas emissions.

Environment groups said the shift would increase pressure on International Power to also write down its 92 per cent share in the plant. While it declines to comment publicly on the plant's value, the company is believed to put its book value at about $2 billion – or roughly $500 million for a quarter.

Greenpeace climate campaigner John Hepburn said the Commonwealth Bank valuation suggested it believed the whole plant could be worth as little as $50 million.

Environment Victoria campaigns director Mark Wakeham said the write-down paved the way for the state and federal governments to close the entire Hazelwood plant sooner than planned. "The Commonwealth Bank can see the writing on the wall – they are obviously expecting the power station to close soon and are not expecting much in the way of compensation,'' Mr Wakeham said.

Investment managers warned against a simple extrapolation of Hazelwood's value based on the Commonwealth Bank write-down.

Colonial First State, which indirectly holds a roughly 6 per cent share of Hazelwood on behalf of a number of super funds, said there had been no change to the value of its holding in the plant.

Nathan Fabian, chief executive of the newly formed Investor Group on Climate Change, said that while the Commonwealth Bank statement would ''influence the optics and the politics'' of the Hazelwood compensation talks, it would not necessarily change the value of the plant to International Power.

Mr Turner said the Hazelwood holding had not been one of the group's ''best'' investments and was not part of its core stakes.

A state government spokeswoman said talks with International Power were under way, but would not comment on the plant's value.

''The Brumby Labor government is the only party committed to begin the phased closure of Hazelwood, and we'll do that by negotiating a fair price with International Power to ensure a smooth transition to replacement generation capacity,'' spokeswoman Fiona Macrae said.

International Power corporate affairs manager Jim Kouts said the Commonwealth Bank decision would have no effect on the overall value of Hazelwood.

"In effect, we're talking about an internal accounting treatment of the bank's investment and in our view there is currently no trigger for this impairment," he said.

He said the company bought Hazelwood for $2.35 billion and, with state and federal blessing, has invested significantly more to improve its efficiency.

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